Tips to Qualify for a Loan Against Securities: Documents and Eligibility in 2026
A loan against securities can help you access funds without selling your investments. It lets your pledged securities remain invested while you meet short-term financial needs. Since the loan is secured, lenders primarily assess the value and quality of your pledged assets rather than your income or credit history.
This article explains the eligibility criteria, what types of securities are accepted, how lenders evaluate applications, and what you can do to ensure your application goes through without issues.
What Is a Loan Against Securities?
When borrowers hold their investments, such as stocks, mutual funds, ETFs, etc., as collateral to avail a loan, the benefit of a loan against securities is the ability to access the necessary funds swiftly and efficiently, per your specific requirements, without having to sell your investments.
When you’ve pledged your shares or mutual funds, you still continue to enjoy ownership benefits such as rights, dividends, bonuses, etc. In turn, you gain access to an overdraft facility based on the value of the pledged securities. This provides flexibility in using the Loan Against Securities funds at your discretion. The loan against security interest rate is calculated only on the withdrawn amount for the loan duration, usually at a lower rate compared to a personal loan.
How Does LAS Work?
When you apply for a LAS, the lender places a lien on your pledged securities. This means you retain ownership, but you cannot sell, redeem, or transfer the pledged assets until the loan is repaid. In return, the lender provides a credit line structured as an overdraft facility based on a percentage of the current market value of your securities.
You pay interest only on the amount you draw from the credit line, not on the full sanctioned limit. Most LAS products allow flexible repayment with no fixed EMI schedule, and many lenders charge no foreclosure fees.
Interest rates on LAS typically range from 9% to 15% p.a., depending on the lender, the type of securities pledged, and prevailing market rates. On smallcase (for mutual fund-backed loans), the rate starts at 9.99% p.a. on the outstanding drawn amount.
Tips to Ensure a Smooth LAS Application
LAS approvals are primarily driven by collateral quality. The following points help avoid the most common reasons for a reduced credit limit or a declined application:
Verify Your Securities Against the Approved List
Before applying, check that your specific securities, individual fund schemes or share ISINs appear on the lender’s approved list. Holdings outside the approved list will not count towards your credit limit, and no amount of portfolio value will make up for ineligible collateral. Most lenders publish their approved lists on their website.
Check the Lock-in Status of Your Mutual Funds
ELSS units under their mandatory 3-year lock-in period cannot be pledged. If a large part of your portfolio is in ELSS and the lock-in has not expired, those units will not be counted. If you are planning to apply for a loan against ELSS funds, first check the lock-in expiry date for each ELSS investment before applying.
Ensure Your Securities Are in an Eligible Account Format
For mutual fund-backed loans, units must typically be held in non-demat (folio/SOA) form registered with CAMS or KFintech, or in a Demat account with an eligible depository participant. For share-backed loans, securities must be in Demat form with a recognised depository (NSDL or CDSL). Physical shares need to be dematerialised before they can be pledged.
Use Correct Credentials When Importing Holdings
For mutual fund-backed LAS, holdings are fetched digitally using the email address or phone number registered with your folio. Using incorrect credentials or omitting an email/phone number linked to a particular folio will result in an incomplete or reduced credit limit calculation. Enter all linked credentials when importing holdings.
For CAMS-serviced funds, use the registered email. For KFintech-serviced funds, use the registered phone number.
Confirm the Holding Account and Joint Ownership Status
If your securities are held jointly, check whether the lender accepts joint-held assets and what co-applicant or consent requirements apply. Applying without co-applicant details when required is a common reason for delays.
Understand the LTV Before Applying
Knowing the applicable LTV ratio helps you set realistic expectations for the credit limit. If you need a specific loan amount, calculate backwards: a Rs 90,000 requirement against equity mutual funds at 45% LTV means you need at least Rs 2,00,000 in eligible equity fund holdings. Plan your pledge accordingly.
Keep Your KYC Active and Consistent
Your PAN should be linked to your bank account and active with your mutual fund registrar or depository. Discrepancies between KYC details across different accounts are a common source of processing delays. Ensure your name, date of birth, and PAN match across all records.
How to Apply for a Loan Against Securities on smallcase?
- Log in to smallcase Credit: Visit smallcase Credit and select Against Mutual Funds or Against Stocks.
- Check eligible securities: View eligible mutual funds, stocks, or other holdings available for pledging.
- Select securities to pledge: Choose the holdings you want to use as collateral and check the credit limit.
- Link your bank account: Add bank details for disbursement and set up an e-mandate.
- Pledge your securities: Selected units or shares are lien-marked while staying in your folio or demat account.
- Sign the loan agreement: Review, verify with OTP, and sign online.
- Receive the loan amount: The amount is usually credited after successful signing and pledge confirmation.
General Eligibility Criteria to Apply for LAS
| Criterion | General Requirement | Notes |
|---|---|---|
| Age | Minimum 18 years; upper limit typically 65-70 years | Varies by lender; some go up to 80 years for certain products |
| Residency | Resident Indian | NRI applicants may be eligible at select lenders, sometimes with a resident co-applicant |
| Employment type | Salaried, self-employed, business owner | Non-individual entities (HUF, partnership, trust, company) are eligible with many lenders, particularly for higher loan amounts |
| Securities holding | Must hold approved securities in an eligible account | Fund type, scheme, and holding format must meet the lender’s criteria |
| Minimum portfolio value | Typically Rs 50,000 or more | Varies by lender; some set it lower, others higher, based on the minimum loan amount |
| Credit score | Generally not a hard requirement | May influence terms for larger loan amounts; primary assessment is collateral-based |
| Income proof | Generally not required | Secured against portfolio value; some lenders may request high-value applications |
Which Securities Are Eligible?
Lenders accept a range of financial instruments as collateral for LAS, subject to their approved lists:
| Security Type | Typical LTV (Indicative) | Notes |
|---|---|---|
| Listed equity shares | Up to 50% of market value | Must be on lender’s approved ISIN list; Group I stocks (top 1% by impact cost) generally preferred |
| Equity mutual funds (open-ended) | Up to 50% of NAV | On smallcase, the LTV for equity MFs is 45% of the current market value |
| Debt mutual funds (open-ended) | Up to 80-90% of NAV | Lower volatility makes these eligible for higher LTV; on smallcase, 75% (max 85%) |
| Hybrid mutual funds | Varies by fund type and lender | Assessed based on the equity/debt composition of the scheme |
| ETFs (Exchange Traded Funds) | Up to 50% of market value | Subject to the lender’s approved list; must be traded on recognised exchanges |
| Government bonds and debentures | Up to 70-80% of face/market value | Eligibility and LTV depend on the lender; must be in Demat form, typically |
| Sovereign Gold Bonds (SGBs) | Up to 75% (varies by lender) | Accepted at select banks and NBFCs |
Note: LTV ratios above are indicative and vary by lender, security type, market conditions, and the lender’s internal policies. Always confirm the applicable LTV with your lender before applying.
The Approved List for LAS: What It Is and Why It Matters
Every lender maintains an approved list of securities eligible for LAS. This list is determined by the lender’s internal risk team and updated periodically. For shares, it is typically based on factors such as market capitalisation, trading liquidity, and regulatory status. For mutual funds, lenders assess factors such as the AMC’s credibility, scheme type, and AUM size.
If your securities are not on the approved list, the lender will not accept them as collateral — regardless of their market value. This is the most common reason for a lower-than-expected credit limit or an unsuccessful application.
Before applying, check the lender’s approved list on their website or app. On smallcase, you can verify which schemes are eligible when you import your mutual fund holdings during the application process.
How Lenders Evaluate a LAS Application?
Because LAS is a secured loan, the approval process is primarily asset-driven rather than income-driven. Here is what lenders assess:
Collateral Value and Stability
The primary assessment is the quality and value of the securities being pledged. Lenders prefer:
- Securities with sufficient market value to meet the minimum loan threshold
- Liquid, exchange-traded assets that can be easily sold in the event of a default
- Securities with lower volatility (debt funds typically receive higher LTV than equity funds for this reason)
- Diversified portfolios over highly concentrated single-stock or single-sector holdings
Credit Score
Since LAS is secured, many lenders do not impose a minimum credit score requirement. However, your credit profile may still be reviewed, particularly for larger loan amounts or if you are applying for a term loan structure rather than an overdraft. A good credit score may help you access better interest rates or higher limits at some lenders.
On smallcase (for mutual fund-backed LAS), there is no hard CIBIL check, and checking your eligibility does not affect your credit score.
Income Proof
Income proof is generally not required for LAS, as the loan is backed by the value of your pledged securities. The repayment obligation is the monthly interest payment, which is covered by your credit line management rather than income verification.
Some lenders may request bank statements or income tax returns for high-value applications, or for non-individual applicants (companies, partnerships) who may need to submit audited financial statements.
Purpose of the Loan
Some lenders ask applicants to state the purpose of borrowing. This is a soft assessment to understand the nature of the requirement. LAS funds can typically be used for any purpose — personal expenses, business working capital, asset purchases, and so on. Lenders do not generally restrict the use of funds, but stating a clear purpose can help the application proceed smoothly.
Documents Required to Apply for a Loan Against Securities
LAS requires minimal documentation. Most lenders have a fully digital application process. The standard requirements are:
| Document | Purpose | Notes |
|---|---|---|
| PAN card | KYC and identity verification | Mandatory across all lenders |
| Aadhaar card or a valid identity proof | Identity and address verification | A passport, a voter ID, or a driving licence may also be accepted |
| Demat account statement or folio details | Verify security holdings and ownership | For MF-backed loans: registered phone/email linked to CAMS or KFintech folios |
| Bank account details | Loan disbursal and interest auto-debit setup | Account must be in the applicant’s name |
| Address proof | Residence verification | Utility bills, rental agreements, or Aadhaar requirements vary by lender |
| Income proof (if requested) | Repayment capacity is not always required | Bank statements or ITR for the last 2 years; more commonly required for non-individual applicants |
Benefits of Availing a Loan Against Securities
- Uninterrupted Investment Growth: By opting for a loan on securities, you can access funds without the need to sell your investments. This ensures that your investment portfolio continues to grow, leveraging market opportunities.
- Cost-Effective Financing: Loans against securities typically come with lower interest rates than unsecured loans. This cost-effectiveness makes it a financially prudent choice for those seeking capital while minimising borrowing expenses.
- Streamlined Process: Once you learn how to pledge shares or other securities, you can experience a hassle-free journey with a streamlined process. From quick approval to swift disbursement of funds, this lending option’s efficiency provides a convenient and timely financial solution.
Risks to Be Aware of Before Applying for a Loan Against Securities
- Margin Calls on NAV or Price Decline: If the market value of your pledged securities falls and the drawn loan amount exceeds the revised eligible limit, the lender will issue a margin call. You will be required to either repay the excess or pledge additional securities within a specified timeframe. Failure to respond may result in forced liquidation of pledged assets.
- Lien Restriction During Loan Tenure: Pledged securities cannot be redeemed, sold, or transferred while the lien is active. If you need to exit a fund or sell shares during this period, you will need to repay the loan and close the facility first.
- Forced Liquidation on Default: If you default on interest payments or fail to respond to a margin call, the lender has the right to sell the pledged securities to recover the outstanding amount. This happens at the prevailing market price and may trigger capital gains tax on the sale.
- Interest Rate Variability: Many LAS products are linked to benchmarks such as MCLR or repo rate. If the benchmark rate rises, your interest rate may increase during the loan tenure. Check whether your loan carries a fixed or floating rate before signing the agreement.
To Wrap It Up..
Qualifying for a Loan Against Securities is primarily about the quality and eligibility of what you pledge, not your income level or credit score. The most important steps before applying are: verifying that your specific securities are on the lender’s approved list, checking the lock-in status of any ELSS holdings, ensuring your accounts are in the correct format, and understanding the LTV ratio so you can estimate how much you can borrow. Eligibility criteria, approved lists, and loan terms vary across lenders. Always review the specific requirements of the lender you plan to apply with before submitting an application. Learn more about Loan Against Mutual Funds and Loan Against Stocks on smallcase.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
smallcase offers quick and easy disbursement of loans against mutual funds ( LAMF). Explore all about the eligibility criteria, documents required, features, and benefits of a Loan against mutual funds on smallcase
Frequently Asked Questions About Loans Against Securities
Stocks, mutual funds, ETFs and bonds can be used as collateral when taking a loan against securities. By holding your investments as collateral, you can easily get funding for your immediate needs without liquidating your assets.
The age group eligible for availing Loan Against Securities (LAS) varies from lender to lender, but most lenders require borrowers to be between the ages of 18 and 65. An individual needs to be between the ages of 18 to 70 years to qualify for a smallcase loan against mutual funds.
A loan against securities may offer lower interest rates than unsecured options like personal loans or credit card debt because it is backed by assets. However, pledged securities carry market risk, and a fall in their value can lead to an LTV breach or forced liquidation.
Disclaimer: This is for educational purposes only and should not be treated as financial advice. Borrowers should review costs, risks, repayment terms, and eligibility before applying.
RBI guidelines cap loans against physical securities at Rs. 10 lakh and demat securities at Rs. 20 lakh per individual. RBI permits using Group I stocks as collateral for loans above five lakhs. Group I stocks are those that have been traded on at least 80% of days in the past six months and are within the top 1% of stocks with the lowest cost impact.
One can repay their loan through small monthly instalments, covering only the interest, automatically deducted from their bank account. Additionally, one can pay a portion of the margin against shares or clear overdue instalments on our customer portal. However, LAMF on smallcase allows you to close your loan at any time without extra fees or penalties.
Improving eligibility for a Loan Against Securities (LAS) may involve pledging high-value securities, maintaining a stable portfolio, reducing liabilities, and having a good credit score. Lenders may also consider income stability and the type of securities offered. Different financial institutions may have varying criteria for approving such loans.
Eligibility for a Loan Against Securities (LAS) depends on several factors, including the type and value of pledged securities, credit score, existing liabilities, income stability, and lender-specific criteria. Market conditions and portfolio diversification may also influence approval, as lenders assess risk before sanctioning the loan. Policies vary across institutions.
Pledging securities for a Loan Against Securities (LAS) may involve selecting eligible assets, choosing a lender, completing documentation, and authorising a pledge agreement. Lenders may assess factors like portfolio stability and market conditions. Understanding loan terms, including margin calls, could help in managing the pledged securities effectively.
For most secured LAS products, a minimum credit score is not required. Approval depends primarily on the value and type of the pledged collateral. Some lenders may consider credit history for larger loan amounts or for a term loan structure rather than an overdraft. Many digital LAMF platforms, including smallcase, do not conduct a hard CIBIL check.
Not necessarily, as mutual fund units held in non-demat (Statement of Account or folio) form with CAMS or KFintech can be pledged for LAMF. Demat-held units can also be used, though eligibility depends on the depository participant and whether their demat accounts are accepted by the specific lender.
Some lenders permit NRI applications, typically through their NRO or NRE demat and folio accounts. Requirements vary; some lenders require a resident Indian co-applicant, others process NRI applications independently. This varies by lender and is not universally available. It is important to check directly with the lender for NRI-specific terms.
